by Shimon Sherman
The country is a proven innovation hub with global reach in cybersecurity and defense technology, yet it has lagged in national-scale investment.
Artificial intelligence and quantum computing are emerging as the twin pillars of strategic power in the 21st century. They are reshaping how nations gather intelligence, safeguard their economies and project influence.
Artificial intelligence allows governments and militaries to process information and make decisions with unprecedented speed and quality.
Quantum computing, meanwhile, threatens to overturn today’s encryption standards, redefining the future of computing power and cybersecurity.
“These technologies are critical national interests, and we are only in the opening years of the race to access and control them,” Tehilla Shwartz Altshuler, a senior fellow and head of the Democracy in the Digital Age Program at the Israel Democracy Institute, told JNS. “However, those first years are incredibly important as they will set up the foundation for future success in these fields,” Shwartz Altshuler said.
That understanding has triggered a surge of state-level investment. The United States and China are spending tens of billions to secure advantages in advanced chips, data centers and algorithmic research.
In 2024, China’s reported public investment in quantum technologies alone exceeded $15 billion, while total global public spending in the field passed $60 billion.
Across the Gulf, Saudi Arabia and the United Arab Emirates have begun pouring sovereign wealth into the same race. A $40 billion Saudi AI fund under discussion with U.S. partners, and an Emirati-American plan to build what U.S. officials describe as the largest AI campus outside the U.S. in Abu Dhabi, are in early planning stages. These projects are designed not simply to attract business, but to guarantee local access to computing power and technological independence.
Israel enters this contest from an unusual position. It is a proven innovation hub with global reach in cybersecurity and defense technology, yet it has lagged in national-scale investment.
Professor Eugene Kandel, chairman of RISE Israel, a policy and innovation institute, explained that after years of political paralysis and war, Israel “arrived late” to the global “preparation phase” for AI.
Kandel, together with Uri Gabai, CEO of RISE, and Gaya Harari-Heit, vice president of strategy and policy at the institute, noted that other countries are in more advanced stages of developing computing infrastructure, data management and talent pipelines.
The private sector
Despite Israel’s underdeveloped AI strategy, the country’s long tradition of innovation leadership does provide a valuable safety net should it decide to launch itself into the race. Israel’s technology base is unusually dense for a country of 10 million people. The country hosts more than 400 research and development centers owned by multinational companies, including U.S. firms such as Nvidia, Intel, Microsoft, Google and Apple, which together employ a significant share of Israel’s high-tech workforce and account for a large fraction of private-sector R&D spending.
Israel also remains a target for expansion by global firms seeking to strengthen AI capacity.
Nvidia, the most valuable semiconductor company in the world, has initiated plans for a multibillion-dollar campus in northern Israel and has signaled that the site is intended to handle future AI data-center and networking work. Israeli officials have described the planned build-out as large enough to employ “thousands” and potentially make Nvidia the country’s largest private high-tech employer.
“The foundations are there: world-class researchers, a dynamic startup scene, and the R&D centers of every major tech company,” the RISE team said.
That foreign presence sits on top of a domestic startup layer that is heavily oriented toward advanced computing. Israel has on the order of 2,000–2,300 AI-focused companies, according to figures published over the past year by Startup Nation Central and cited by innovation officials.
Despite the wartime conditions, this startup ecosystem has flourished financially. In the first half of 2025 alone, Israeli startups raised roughly $9.3 billion across 367 private financing rounds, representing a 54% increase compared to the same period last year. AI companies are taking the lion’s share of these investments.
Though comprising about 30% of the Israeli tech ecosystem, AI companies have secured approximately 47% of total tech investment rounds and 40% of funding rounds in recent years.
In quantum computing, Israeli venture capital flows are smaller in scale but rapidly increasing. One industry map released in 2025 counted nine main Israeli quantum computing startups with a collective raised capital of about $650 million to date, including more than $300 million raised in 2025 thus far alone.
State investment
Despite Israel’s impressive private sector AI ecosystem, most experts agree that to really compete in the AI race, state involvement is critical. After years in which most of Israel’s advances in AI and cyber were driven by private companies, the state has begun building a national framework of its own.
A National Artificial Intelligence Directorate was set up to coordinate policy across ministries, academia and industry. This move followed recommendations by the Nagel Committee on the acceleration of the field of artificial intelligence in Israel, a government panel that, in an report published on Aug. 4, called for a 25 billion shekel (~$6.6 billion) in national investment over five years to build AI infrastructure, expand access to computing power and train technical talent.
At the same time, Israel has moved to tie its technology policy directly to its foreign alliances.
Israel and the United States have agreed on plans for a joint $200 million AI and Quantum Science Center, to be split between Tel Aviv and Arlington, Va. Under the proposal, each country would contribute $20 million per year from 2026 through 2030 to fund research in areas such as cybersecurity, quantum systems, genetics, and water and food security.
The initiative is being advanced by Maj. Gen. (res.) Tamir Hayman, director of the Institute for National Security Studies (INSS) at Tel Aviv University, and Smadar Itskovich, head of the AIQ-Lab (AI & Quantum Sovereignty Lab). They describe it as a strategic technology partnership meant to link Israel, the U.S. and regional partners connected to the Abraham Accords.
Inside Israel, the government has also begun funding national computing capacity. The Israel Innovation Authority approved support for a national AI supercomputer to be built and operated by the Nebius Group at a cost of about $140 million. The system is slated to include roughly 4,000 Nvidia Blackwell GPUs and provide on the order of 16,000 petaflops of computing power, with initial operation targeted for early 2026.
A parallel data center buildout is underway. Nebius and Israeli developer Mega Or recently announced a large AI-focused data center complex to be established in Modi’in, which is expected to be the largest such facility in the country. Around a quarter of that capacity is expected to be reserved for the Innovation Authority to run the planned national supercomputer.
According to public statements reported at the time of the launch, this facility is intended to give domestic researchers, startups and government programs access to high-performance GPU clusters based on Nvidia’s newest architecture.
“Right now, Israeli companies depend almost entirely on foreign cloud providers, paying millions for GPU access and facing long waiting times and low priority,” Gabai and Harari-Heit pointed out.
Experts explained, however, that Israel is still not close to providing the necessary computing power to compete in the AI race.
“Advanced AI models can’t be trained or deployed without massive and specialized compute power, and in this area, Israel is already lagging,” the RISE team said. They added that for the national supercomputer to allow the Israeli AI industry to truly compete on the global level, it would need to be scaled up at least 10-20 times.
Competing in the global AI race will also require restructuring vast swaths of Israel’s energy infrastructure.
In February 2025, internal government assessments described the national power system as “aging,” and noted that a single hyperscale site can draw as much power as a medium-sized municipality.
“There is a critical issue surrounding Israel’s energy grid. The current infrastructure is not sufficient to support the quantities of energy that are necessary to support a national AI program. There will have to be massive investments in the energy grid,” Shwartz Altshuler said.
Gabai and Harari-Heit agreed, adding that “energy and grid resilience are a priority.”
The RISE team further observed that Israel must capitalize on its vast swaths of accumulated data, a critical component for training AI models. Improving data infrastructure is essential, they said. “Israel holds unique public data in areas such as health and education, but most of it is inaccessible. Creating secure and trusted data zones could become a major competitive advantage.”
Schwartz Altshuler explained that Israel’s contentious geopolitical position makes securing its technological assets against cyberattack a critical imperative for any national AI strategy.
“Israel lacks the toolkit to make sure the basic standards of cybersecurity are enforced across the government agencies and private industries. An expansion in the national AI program would have to come with a rewiring of all these protocols to make sure our systems are resilient,” she noted.
Gabai-Harari said, “Israel must ensure reliable connectivity and system redundancy, and secure local storage so that critical services remain operational even in times of crisis.”
Human talent
Experts warn that Israel might also face challenges in developing and retaining the human talent necessary for a leadership position in AI.
“Unlike the cyber arena, where you can go through a course in the army and then start developing a product, AI requires a deeper base and academic research and expertise,” Schwartz Altshuler explained.
Multiple Israeli policy reviews this year warn that Israel’s high-end research base in artificial intelligence and quantum computing is too thin to support long-term leadership.
The Nagel Committee argued that Israel cannot compete globally without a stronger academic core and called for a state-backed push to expand and retain top researchers.
The RISE team likewise pointed out that the country is constrained by the depth of its human capital in academia. “Israel needs to attract top researchers through fast-track visas and bring back Israeli experts from abroad with strong research incentives. This is very hard with the existing system of compensation in the Israeli academy,” they said. “There must be a very rapid solution; otherwise, Israel will lose the top talent in academia, instead of attracting it,” the team added.
At the same time, Israel is seeing a measurable outward flow in its high-tech workforce.
The Israel Innovation Authority’s 2025 high-tech employment report found that from October 2023 to July 2024, roughly 8,300 Israeli high-tech workers left the country for at least a year, about 2.1% of the high-tech workforce. The same report noted that Israeli tech companies now employ more people abroad than inside Israel: about 440,000 employees overseas compared to about 400,000 in Israel.
The government has started to respond, but on a limited scale. The Ministry of Innovation, Science and Technology and the Israel Innovation Authority have both backed programs to bring back researchers working overseas and to bring in foreign AI specialists.
One effort earmarked around 7 million shekels (about $2 million) to attract at least 200 outside AI experts to work with Israeli startups over a three-year period, and nonprofit initiatives such as ScienceAbroad are trying to maintain active ties with Israeli scientists while they are still at U.S. and European institutions, with the stated goal of making it easier for them to return to Israeli academia and industry. The underlying concern, repeated in government and industry reporting, is that Israel could become a training pipeline for high-end AI and quantum talent that then leaves.
Shimon Sherman is a columnist covering global security, Middle Eastern affairs, and
geopolitical developments. His reporting provides in-depth analysis on
topics such as the resurgence of ISIS, Iran’s nuclear ambitions,
judicial reforms in Israel, and the evolving landscape of militant
groups in Syria and Iraq. With a focus on investigative journalism and
expert interviews, his work offers critical insights into the most
pressing issues shaping international relations and security.
Source: https://www.jns.org/israel-playing-catch-up-in-ai-after-two-years-of-war/
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